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Eurozone Ponders IMF-Style Financial Rescue Agency

  • Breffni O'Rourke

German Chancellor Angela Merkel has backed the EMF proposal the EMF proposal, calling it "good" and "interesting."

German Chancellor Angela Merkel has backed the EMF proposal the EMF proposal, calling it "good" and "interesting."

(RFE/RL) -- The Greek financial crisis has spurred other members of the common currency to think of new ways to prevent the euro falling into chaos.

One idea that has quickly caught on is to create a "European Monetary Fund" (EMF), with a full meeting of the European Commission in Brussels today expected to flesh out the proposal.

The idea was first aired publicly at official level in a March 6 press interview by German Finance Minister Wolfgang Schaeuble, in which he said Europe needs an institution similar to the International Monetary Fund (IMF) to combat situations such as the Greek debt crisis.

Schaeuble told the "Welt am Sonntag" newspaper that he does not envisage an institution that would compete with the IMF, but rather be a body dedicated to the internal stability of the eurozone.

Like the IMF does on the world stage, the proposed EMF would be a lender of last resort to eurozone members in crisis. It would also be able to offer organizational help to bring those countries' houses into order. Like the IMF, borrowers could expect any help to come with strict conditions.

EU spokesman Amadeu Altafaj Tardio told journalists in Brussels that it's particularly important to recognize potential crises before they emerge, and take early action to prevent them.

"We are in a very open discussion at this point in time, considering ways and means to be more effective, both on the intervention side when a situation emerges, but also on the preemptive side," Tardio said. "And I would like to emphasize that second element, the preemptive side, is extremely important, and this is why we are focusing on increased economic coordination of euro area member states."

Tardio said that the EMF was not being formed to help Greece, because it would take time to set up. It's aimed at preventing future problems, he said.

Looking To The Future

Greece is currently almost overwhelmed by the size of its national debt, some 113 percent of gross domestic product (GDP), and the uncertainty among investors as to whether it will default on its repayments has led to a significant fall in the value of the euro.

Compounding the fear is that the uncertainty could spread to other economically weak members of the eurozone, like Spain, and that would risk a collapse of the euro.

A key player on the scene, German Chancellor Angela Merkel, on March 8 threw her support behind the EMF proposal, calling it "good" and "interesting."

But she said there is much still to work out, such as who would pay into the EMF's coffers, and how independent it would be from existing EU structures, namely the European Commission and the European Central Bank.

And she said setting it up would require a change of the EU's basic treaty, the notorious Lisbon Treaty, which took so long to negotiate and ratify.

That daunting task looks unavoidable in that the earlier Maastricht Treaty that set up the single currency forbids the EU from collectively bailing out individual eurozone countries.

And not everybody supports the EMF proposal. Writing in the German newspaper "Handelsblatt," European Central Bank board member Juergen Stark strongly criticized the idea, which he said would penalize countries with solid finances and encourage loose spending, because erring countries would know they have a safety net as a final resort.
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